Table of Contents
- Company profile - the world's largest telecommunications group
- The latest China Mobile quarterly figures from March 2024
- China Mobile share forecast 2024
- Key figures of the China Mobile share from the dividend analysis
- Valuation of the China Mobile share
- Conclusion on the China Mobile share
China Mobile (ISIN: HK0941009539) is the world's largest telecommunications group thanks to the large number of citizens in China. It enjoys a dominant market position in China, one of the most dynamic and largest telecommunications markets in the world. The company's shares are known for their favorable valuation and attractive dividend yields, supported by a solid financial base with low debt.
Source: China Mobile share price
Since 2015, however, the share price has consolidated strongly, which was essentially due to the increasing tensions between the major economic nations. Since then, Chinese shares have been traded at an even higher risk premium. However, a slowdown in growth, increased competition and the coronavirus pandemic also had a negative impact on the company.
Since the end of 2021, however, there has been a clear turnaround, which has recently even gained significant momentum. China Mobile's share price has risen by around 60% over the past three years. The still favorable valuation with a P/E ratio of 10 and the current dividend yield in the high-yield segment (more than 5%) are convincing. This is well above the ten-year average.
The combination of market leadership, financial stability and attractive yields makes China Mobile an attractive investment from today's perspective, provided that investors are prepared to accept the China risks. Let's delve deeper today with the China Mobile share analysis. Could the share be a buy?
The most important facts in brief
- China Mobile is the world's largest telecommunications group with a dominant market position in China
- A favorable valuation and high dividends are convincing
- Low debt and further growth could ensure further dividend increases
- The strong connection to China and weaknesses in the growth story cast a different light on the favorable valuation
Company profile - the world's largest telecommunications group
With almost one billion smartphone users, China Mobile is the largest telecommunications company in the world. With a market capitalization of almost 200 billion euros, the company is only just behind the rising star T-Mobile US. As a former state monopolist, it dominates the Chinese market like no other. The Chinese state is the majority shareholder.
Source: Stockscreener Telecommunications
No wonder, as China is also the world's most populous country with over 1.4 billion people. And even if the demographics are not in China Mobile's favor due to the one-child policy, the population density should at least remain high in the coming decades. This could mean a stable environment for China Mobile.
China Mobile's business model can be divided into three main business areas:
- Mobile Business,
- Broadband Business and
- Corporate Business.
Mobile Business
The mobile business is the core segment of China Mobile and offers a wide range of services and products for the mobile market. These include traditional voice and SMS services, which continue to account for a significant proportion of revenue, as well as mobile data services for smartphones and other mobile devices. The growing demand for mobile internet and applications has led to significant investment in 4G and 5G network infrastructures that ensure fast and reliable connections. In addition, China Mobile offers a variety of value-added services, such as music and video streaming, mobile games, cloud storage and mobile payment services, which open up additional revenue streams and strengthen customer loyalty.
By the end of the 2023 fiscal year, this segment will have almost one billion users, around 800 million of whom will already have 5G connections. This shows how far ahead of the western world the Chinese are in terms of connectivity. China Mobile is an important driver of this development.
Broadband business
The broadband business focuses on fixed broadband services. One focus here is on the provision of fiber-optic broadband services (FTTH) for households, which enable high Internet speeds and reliable connections. Here too, China Mobile has invested heavily in the expansion of fiber optic networks in the past in order to meet the growing demand for fast Internet. In addition to fixed-line telephony services, which still make up part of the business despite a decline compared to mobile services, China Mobile also offers TV and media services such as IPTV. These digital TV services are provided via the broadband network and are often combined in packages with Internet and telephony services to create attractive offers for customers. Other telecommunications groups are also known to offer similar services.
Corporate Business
The corporate customer segment is aimed at business customers and comprises a wide range of solutions and services. Specifically, China Mobile offers mobile communication solutions for companies, including customized data tariffs and device management. The company also provides cloud computing services and data center services tailored to the needs of enterprises. These include IaaS (Infrastructure-as-a-Service), PaaS (Platform-as-a-Service) and SaaS (Software-as-a-Service) solutions. Another important aspect is IoT (Internet-of-Things) solutions, which serve various sectors such as smart cities, healthcare, logistics and industrial automation. These services utilize China Mobile's extensive network infrastructure and data analytics capabilities. The offering is complemented by comprehensive ICT (Information and Communication Technology) solutions that combine communication and information technologies to meet business needs. These include network security solutions, enterprise networks and system integration.
Revenue sources of China Mobile
China Mobile derives its operating revenue from various sources, which can be mainly divided into two major categories:
- Revenue from telecommunication services and
- Revenue from the sale of products and other services.
The telecommunications service business dominates here, accounting for 86% of revenue. China Mobile is particularly strong in the area of wireless data communication (Wireless Data Traffic Services), which accounts for almost 40% of revenue. However, this area showed a slight downward trend in the last financial year. This development is mainly due to increasing market saturation and strong price competition.
Source: Annual Report 2023 China Mobile
By contrast, there was significant growth in fixed-line broadband services (Wireline Broadband) and value-added services (Applications and Information Services). They increased by 13% and 21.5% respectively. This primarily reflects the trend of increasing demand for fast and reliable broadband connections. However, music and video streaming as well as mobile games and cloud services or mobile payment services are also providing the decisive growth momentum in an economic segment that is capital-intensive and characterized by saturation tendencies.
Source: Financial data 2023 from China Mobile
However, total revenue in the 2023 financial year increased slightly by 2% to HK$1.1 trillion. The operating result fell by two percent to 148 billion HK dollars. Net profit remained at the previous year's level of HK$145 billion.
Competition: China Unicom and China Telecom
China Mobile's main competitors in China are the two other state-owned telecommunications companies, China Unicom and China Telecom. They offer similar services, including mobile, broadband and enterprise solutions.
While China Mobile is the largest provider, China Unicom and China Telecom are also investing heavily in their network infrastructures and expanding their value-added service offerings to gain market share. They, too, are reporting rising sales and profits, but have not yet been able to steal a march on the industry leader. In the end, however, this is likely to be a political decision.
Risks
This brings us to the biggest risk to the share. A major risk is that China Mobile is subject to regulation by the Chinese government, which is also the majority shareholder in China Mobile. It has an influence on various aspects of the business, including pricing, network infrastructure and market access.
Changes in regulatory handling could therefore quickly lead to additional costs or restrictions that could affect the company's business activities or profitability. However, this risk also applies to all other telecommunications groups worldwide. The only difference is that the political decision on market development could be less democratic and more socialist.
There are also specific political risks that could arise from geopolitical tensions between China and other countries. China Mobile only operates in China and is only likely to be indirectly affected by trade wars, sanctions or other political measures. However, shareholders could be severely restricted in their ownership rights. There have already been restrictions on the American ADR version of China Mobile shares in the past. It is also conceivable that - similar to Russian shares - share ownership or trading could be banned, made more difficult or significantly less attractive for foreigners.
The latest China Mobile quarterly figures from March 2024
The first quarter of 2024 showed a stable trend on the revenue side. At the equivalent of 287 billion HK dollars, revenue remained at the previous year's level. However, the operating result jumped by 13% to 50.3 billion HK dollars. Net profit remained unchanged at 32.2 billion HK dollars.
Source: China Mobile quarterly figures
As of March 31, 2024, China Mobile had a total of 996 million mobile customers, including 799 million 5G package customers and 488 million 5G network customers. Mobile data traffic increased by 3.3% year-on-year and the average data consumption per user was 14.9 GB. With an average revenue per user (ARPU) of 47.9 renminbi, significant growth of 6.7% was even achieved.
There was also positive momentum in the fixed broadband segment. By the end of March 2024, the company had 305 million fixed broadband customers, which corresponds to a quarterly net increase of 6.83 million. The average revenue per household customer (ARPU) also increased here year-on-year - by 1.8% to 39.9 renminbi.
China Mobile's "1-2-2-5" strategy, which aims to position the company for the future through clustering, centralization, innovation and 5G applications, appears to be bearing its first fruits. The aim here is to strengthen competitiveness, increase efficiency and further expand market leadership in the area of telecommunications and information services.
China Mobile share forecast 2024
No detailed financial forecasts for the coming quarters or the full year 2024 can be derived from either the 2023 annual report or the last quarterly report. However, the analysts go further. They believe that the company will continue to grow in the low single-digit percentage range in the future. Specifically, turnover is expected to increase by 5.04 percent to 1.2 trillion HK dollars in the 2024 financial year. By 2027, turnover could then rise to 1.3 trillion HK dollars.
Source: Turnover and growth forecast from China Mobile
A slight increase in net profit could also be realistic. Specifically, analysts are forecasting growth of 4.3 percent to 152 billion HK dollars. In the long term, however, it should also be possible to further increase profitability at an attractive level - to a value of 166 billion HK dollars in the 2026 financial year. A net margin of 13% remains solid.
Source: China Mobile's net margin forecast
Key figures of the China Mobile share from the dividend analysis
In the dividend analysis, the China Mobile share impresses with a score of 13 points. This is just two points short of the maximum possible score. These two points can be attributed to the categories of dividend continuity over ten years and dividend growth over the last five years. The dividend cuts in the years 2013 to 2015 are a particular burden here. Overall, the company has only been able to show stable or rising dividends in the last eight years.
Source: Dividend analysis of the China Mobile share
The dividend growth rate of 8.5% was also only average in the dividend analysis. Only a value of over ten percent would have been awarded full points.
On the other hand, the China Mobile share impresses with a high dividend yield. It currently stands at 6.3%, well above the average of 4.9% for the last ten years. The sharp fall in the share price since 2015 is primarily responsible for this increase. With a payout ratio of 65% over the last three years, the payout is also very solid.
Source: China Mobile dividend history 22 years & forecast 2024 to 2027
In the long term, however, China Mobile's shares are characterized by relatively robust dividend payments. In 2017, a special dividend of 3.2 HK dollars was also paid out. Analysts also expect steadily rising dividends in the future. A significantly higher dividend of 6.43 HK dollars could be possible as early as 2027. Compared to the most recent dividend of 4.83 HK dollars, this would correspond to an increase of 33% in just four years. If this actually happens, the dividend growth rate of the past is likely to continue.
How safe is China Mobile's dividend?
A look at the company's history shows that shareholders can have great confidence in the dividend policy. Without exception, a dividend has been paid in the last 22 years. And in most cases there have even been increases. If the special dividend is set against the dividend cuts, this dip can easily be offset.
In my opinion, probably the strongest argument in favor of the share is the low level of debt and the generally attractive growth potential. In contrast to most telecom companies, which have to contend with high levels of debt, China Mobile has no significant bank debt. The equity ratio at the end of the last financial quarter was 68%. It is also worth noting that cash and cash equivalents represent the largest item in current assets in terms of value.
Source: Financial data from China Mobile Limited
In combination with the low payout ratio and the strong free cash flow, it should be easy for the company to implement the dividend increases forecast by analysts. Ultimately, however, this should also be a question for the main owner, the Chinese state.
Valuation of China Mobile shares
With an expected P/E ratio of 10.4, the valuation of China Mobile shares can be classified as favorable. However, the weak sales growth of 1.4% in the last twelve months is less convincing. More is not to be expected in the medium term. And even if growth is only weak, the company is still at the upper end of the scale compared to its competitors.
Source: Valuation of the China Mobile share
A free cash flow multiple of 9.9 also shows that the profits were actually generated in the form of freely available funds. The dividend yield of 6.4% is also attractive. However, specific political risks must also be taken into account with China Mobile. If these are taken into account, the share could be anything but cheap - it is all a question of perspective.
Conclusion on China Mobile shares
Overall, China Mobile appears to be a solid investment with a leading position in the Chinese telecommunications market and attractive key financial figures. The favorable valuation and high dividends offer investors solid return prospects. For investors looking to invest in telecom stocks for the long term, China Mobile could therefore continue to offer potential due to its market position and financial stability, especially considering developments in the global technology sector. However, the risks arising from dependence on the Chinese market and geopolitical uncertainties must be taken into account. And they weigh heavily.
Source: China Mobile analyst opinions
The analysts tend to take a similar view. Of the 18 analysts, none recommend selling or holding the shares. The average target price of 85.28 HK dollars is around 14 percent above the current share price.
Ultimately, however, investors must be prepared to take risks despite the high dividends and share price potential. They do not primarily come from the company itself, but rather from the political side. With Russian shares, we have seen in the past that shares can become practically worthless from one day to the next - simply because they are no longer tradable. In view of China's continuing tense political situation vis-à-vis the Western world, this is likely to remain one of the biggest uncertainty factors for the time being.
